Gold jewellery may become expensive as the Reserve Bank of India (RBI) on Monday made it mandatory to export 20% of imported gold in the form of ornaments—a move that can potentially shrink the amount of yellow metal available for domestic consumers.
Besides, bullion traders would be prompted to sell gold to overseas buyers even at a lower price to meet the latest export rules. This, in turn, may force them to raise domestic jewellery prices to cover for the losses, experts said that.
The RBI also specified that all gold importers would supply gold in any form only to jewellers or dealers supplying ornament manufacturers, with a view to stem investment in gold in order to bring down the country’s current account deficit (CAD) and strengthen a falling rupee.
“Consumers might have to pay more for gold products,” said Somasundaram PR, managing director, World Gold Council India.
Gold prices rose by Rs. 390 to Rs. 27,680 per 10 grammess in the national capital on Monday.
Stemming foreign capital outflows have become critical for India, as the rupee has lost almost 15% since May plunging to record 61.21 earlier this month. The CAD – the difference between dollar inflows and outflows-- hit a high 4.8% of the gross domestic product in 2012-13.
A weaker rupee can fan inflation by making imported goods such as crude oil costlier resulting in higher fuel prices.
Gold and crude oil imports have driven India’s CAD to record levels even as foreign investors withdraw from emerging markets such as India after the US central bank signalled a withdrawal of its monetary stimulus.
Gold imports had crashed to around 31 tonnes in June from 162 tonnes in May and 141 tonnes in April after the government and the RBI imposed restrictions including higher customs duties.
"The RBI measure will bring down imports to 500 tonnes and boost exports to at least 100 tonnes this year," Vipul Shah, Gems and Jewellery Export Promotion Council Chairman said. “There will be some impact on prices.”
Indian imported 970 tonnes of gold in 2012 of which 70 tonnes, or 7 %, were exported.